Value Drivers for a Fitness Center
Fitness is quickly becoming a part of everyone’s daily life. As such the fitness and wellness industry is experiencing rapid growth. If you own a fitness center, you may be in a great position to sell your business. The best time to sell is when cash flow is trending up and the industry is expanding. However, it may also be a great time to consider expanding to another location or investing in a franchise.
On the other hand, if you have thought about entering this industry, specialized markets emerge in the fitness industry every day, making it a prime opportunity for entrepreneurs looking to own a fitness center or gym. While startup costs are often steep for fitness centers, it may be easier for a potential buyer to purchase an existing fitness center.
Whether you are thinking of selling or buying a gym or fitness center, you should be know how to value a fitness center and be aware of some of the value drivers. Focusing on these can help you maximize the value of your company.
First and foremost, is equipment – your most valuable asset. The state of your equipment is one of the biggest drivers of cash flow. Up-to-date, fully functioning, and well-maintained equipment will increase the value of the gym. While outdated, poorly maintained equipment will decrease the value of your gym. Not to mention, equipment condition also impacts membership retention.
In traditional fitness centers, the equipment acts as collateral which decreases specific risk and increases the value. However, there are many new fitness concepts emerging which use little or no equipment. In these centers, proprietary equipment is very valuable. Because of this, these types of gyms yield higher margins which then increases the overall profitability.
In the end, investing in your fitness equipment will help with cash flow and revenue. A buyer will be more likely to pay a higher price for a club with good equipment and clean facilities.
Members are the lifeblood of your gym. They are the main source of recurring revenue. Profitability is often determined by how many members signup and recur. The greater this ratio the more valuable your gym.
Steady membership retention is key to increasing the value. One way to do this is by having members pay dues. Studies show that members who pay dues month-after-month rather than yearly or in upfront payments have a higher lifetime value. This increases the fitness center’s EBITDA multiple and decreases company-specific risk. Another important key to retention is high-quality service and staff. Take the time to recruit and train an excellent team. If your gym membership is declining it may indicate a decrease in the company’s performance and result in a lower value.
Diversify Revenue Streams
With the rapid diversification of the market, there are many opportunities to expand into new revenue streams. Adding additional classes and training sessions can help increase your gym’s enrollment. Not to mention it also adds new revenue streams to your bottom line. Classes can be based on niche or emerging markets. Examples include women, kid’s, or senior classes, as well as specialized classes like pure barre or hot yoga. Offering classes such as these can help develop a loyal following.
In addition, private sessions like personal training can significantly increase a club’s revenue. Other ideas to increase profitability and diversify revenue streams include expanding into areas like apparel, juice bars, nutrition programs, and supplements.
The size of your fitness center can impact the ultimate value of the business. For instance, a small yoga studio may only receive a 3x EBITDA multiple whereas a multi-location gym may receive a 5x multiple. As a fitness center owner, think about expansion options that can increase your value. If you see yourself running your business a few more years, opening or acquiring more locations will help you get a better price when you are ready to sell.
On the other hand, if you are thinking of selling soon, other fitness center owners may be looking to acquire smaller studios. This gives you a great opportunity to maximize your selling price.
While expanding locations is just one option, moving to a larger location is another that may allow you to accommodate more members and house more equipment. This also can increase your value. Before considering this option, analyze the costs and potential market to evaluate whether it may be a good investment.
There is a recent trend of businesses taking more interest in the health and well-being of their employees. Many initiatives are being implemented to encourage healthy lifestyles. These corporate health initiatives create unique opportunities for fitness centers. Many fitness centers have increased revenues and enrollment by partnering with other businesses and insurance companies in the community. These partnerships typically give discounts to employees of the business while establishing contractual terms for recurring revenue. In addition, corporate partnerships can also help build your reputation and visibility in the community.
Creating a recognizable brand and firmly establishing yourself in the community will increase the value of your business. The stronger your brand, the more likely your EBITDA multiple will be higher. You can build brand awareness through numerous initiatives. Some examples for building your brand may include community involvement, a strong social media presence, and happy clientele spreading the word.
Lastly, fitness centers with franchise rights are more recognizable to consumers. This strengthens the attractiveness of a location. Franchised fitness centers often have more support, training, multiple locations, and higher brand awareness. These factors often increase SDE and EBITDA multiples. Popular fitness franchises include Anytime Fitness, Orangetheory Fitness, Crunch Fitness, 9Round, GymGuyz, Pure Barre and Club Pilates among others.
Entering the fitness industry is an increasingly appealing and lucrative venture. Whether you are looking to buy or sell a fitness center, you need to know how to value your business. The first step to finding out how much your business is worth is with a business valuation. Peak Business Valuation would love to help you get started!
While every situation is unique, understanding what can impact the value of your fitness center can help you take steps to increase the value. Peak Business Valuation has worked with several gym owners to provide a business valuation when buying or selling a fitness center. We are happy to answer any questions you have. Please reach out via email or through a phone call.Schedule Your Free Consultation Today!